Interim Results
Ukrproduct Group Ltd
15 September 2005
15 September 2005
Ukrproduct Group Ltd
Interim results for six months ended 30 June 2005
Ukrproduct Group is a leading Ukraine-based producer and distributor of branded
dairy foods.
Combined* results (H12004 in brackets):
• Net Sales up 57% to £17.3m (£11m)
• Gross profit up 70% to £2.9m (£1.7m)
• EBITDA up 56% to £1.6m (£1m)
• Net profit up 78% to £1.16m (£0.65m)
• Basic earnings per share**: 2.8p (2.1p)
• Proposed first interim dividend of 0.36p per share
Operating highlights
• Continued growth in core processed cheese and packaged butter segments.
• Strengthening of market leadership in core segments.
• Further preparation to enter the hard cheese segment.
• Redemption of bank debt to secure cheaper credit facilities.
• Upgraded production facilities and improved the logistical and trading
capabilities.
• Successful IPO on AIM on 11 Feb 2005:
• First Ukrainian trading group to be listed on London Stock Exchange
• Offer oversubscribed, raising £6 million gross
• Shares have consistently outperformed the placing price
Sergey Evlanchik, CEO of Ukrproduct Group, commented:
"In the first half of the year, I am pleased to report that we have made
progress on all fronts with good growth in revenues, improved margins and,
consequently, profits are ahead strongly.
"We are well positioned to take advantage of the continuing economic growth of
Ukraine. Dairy-based foods are directly benefiting from rising consumer
affluence and the shift of preferences towards packaged quality products. In
addition, we are watching adjacent segments of the market closely, and in
particular hard (cheddar) cheese, in order to be able to react quickly to
opportunities as they arise."
For further information:
Ukrproduct Group +38 044 502 8014
Sergey Evlanchik, CEO, and Dmitry Dragun, CFO
Financial Dynamics +44 20 7831 3113
Ben Foster/ Charles Watenphul
*The combined figures refer to the aggregated results of the Enlarged Group, as
defined in the non-statutory financial statements for the period ended 31
December 2004, for the six months ended 30 June 2005 and are fully comparable
with the financial results for the first half of 2004. The Directors believe
that the combined method best illustrates like for like performance. The
combined figures are also supplemented by the consolidated results which show
the results since Ukrproduct Group Ltd ("the Company") acquired the "Operating
Group" on 11 February 2005 using purchase accounting. This consolidated method
will form the basis for the statutory financial statements for the year ended 31
December 2005 (Note 1).
** Earnings per share excluding non-recurring items: release of "negative
goodwill", income from exchange differences and other non-operating expenses
CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT
It gives us great pleasure to announce our first set of interim results since
becoming a public company. This is Ukrproduct's first six month trading period -
which includes the initial public offering (IPO) of Ukrproduct Group on 11
February 2005. The flotation was a momentous step in the continuation of our
strategy to become the leading branded dairy-based FMCG business in Ukraine.
Trading Results
Our results for the six month period show increases in both sales and operating
profits (EBITDA) on a comparable, like for like basis, by 57% and 56%
respectively. Net profits on the same basis grew more substantially by 78%,
helped by lower interest charges. The growth in margins was also material.
On the basis of the combined accounts for the six months to 30 June 2005 - which
we believe provide the most appropriate comparison with the last year's
corresponding six month period - basic earnings per share increased by 33% from
2.1p to 2.8p.
The Board proposes to pay a 0.36 pence interim dividend to those shareholders on
the register on 23 September 2005. This dividend will be paid on 28 October
2005.
Operating Review
The operating environment of the Group remained buoyant and dynamic. As in the
last year, the processed cheese and packaged butter segments in Ukraine once
again experienced significant volume growth. Consumer demand remained strong in
the first half of the year and trading so far in the second half points to the
continuation of this trend.
Using the funds raised at flotation, the Group significantly strengthened its
distribution network, conducted the forward storage in full volume (thereby
securing an uninterrupted supply of raw materials for production in winter
months), and completed the new processed cheese workshop at Molochnik, which
resulted in capacity increasing to 2,000 tonnes of processed cheese per month.
We are continuing to invest in the development of new products, with the first
innovative products of this year, vacuum-packed processed cheeses are due to
arrive on the shelves of the country's retail outlets shortly. We have broadened
the product range to include several new taste varieties including paprika, crab
and bacon.
Initial Public Offering
On February 11, 2005 the Group successfully listed in section AIM of London
Stock Exchange. The number of the shares offered to the public was 11,214,953,
which represented 27.2% of the enlarged issued share capital of the Company
(41,214,953 shares). The Company's market capitalisation based on the placing
price of 53.5p per share was approximately £22 million when the dealings
commenced. The Company raised £6 million gross, with flotation expenses of
roughly £0.8m. On the date of the IPO, Ukrproduct Group Limited completed the
acquisition of 100% of the share capital of CJSC Ukrproduct Group (Ukraine),
Dairy Trading Corporation (BVI) and LinkStar Limited (Cyprus).
Strategic update
The Group intends to remain the leader in the two core segments of processed
cheese and packaged butter, by increasing its presence domestically and
facilitating its corporate marketing and promotional activities in larger cities
throughout the country. The Group is also active in developing its logistical
arm (Ukrproduct Logistics - a subsidiary of the Group's main operating company
in Ukraine), in order to serve its parent company and also to provide the
services to third parties. In addition, the Group plans to enter the lucrative
hard (cheddar) cheese segment in 2006-2007.
Outlook
The Board believes that the Group remains well positioned to take advantage of
the continuing economic growth of Ukraine. Dairy-based foods are directly
benefiting from rising consumer affluence and the shift of preferences towards
packaged quality products. We are watching adjacent segments of the market
closely and in particular hard (cheddar) cheese in order to be able to react
quickly to opportunities as they arise.
Jack Rowell Sergey Evlanchik
Chairman CEO
Combined financial results for the Group:
• Net Sales up 57% to £17.3m (£11m)
• Cost of sales up 55% to £14.4m (£9.3m)
• Gross profit up 69% to £2.9m (£1.7m)
• Gross margin increased to 16.7% (15.5%)
• Administrative expenses increased by 140% to £0.85m (£0.35). This increase
was mainly due to the new expense category related to the post-IPO public
nature of the Company, as well as increase in the wages category, due to
employee number and average pay increase.
• Selling expenses up 70% to £0.7m (£0.4m). The main factor influencing this
increase was staff salaries.
• EBITDA up 56% to £1.6m (£1m)
• EBIT up 58% to £1.36m (£0.86m)
• Profit before tax up 73% to £1.3m (£0.75m)
• Profit after tax up 78% to £1.16m (£0.65m)
• Earnings per share up 33% to 2.8p (2.1p)
Combined segmental analysis:
Sales Share in Share in Gross Profit Gross Gross
H1 2005 Sales Sales H1 2005 Margin Margin
£ 000 H1 2005 H1 2004 £ 000 H1 2005 H1 2004
Cheese 7,309 42% 40% 1,617 22.1% 20.4%
Butter 5,081 29% 37% 759 14.9% 10.9%
Milk Powder 3,611 21% 16% 490 13.6% 19.5%
Services 201 1% - 9 4.4% 4.6%
Other 1,107 7% 7% 14 1.3% 2.7%
Total 17,309 100% 100% 2,889
BALANCE SHEET
£ '000 30/06/2005 30/06/2005 31/12/2004
Consolidated Combined Combined
__________ __________ __________
Unaudited Unaudited Audited
Non-Current Assets
Property, Plant and equipment 6,945 6,945 5,023
Intangible assets 9 9 3
Investments 92 92 83
Deferred tax 41 41 36
Total non-current assets 7,087 7,087 5,145
Current assets
Cash and cash at bank 1,264 1,264 300
Inventories 4,370 4,370 2,328
Loans issued 727 727 212
Receivables and prepayments 3,481 3,481 2,029
Total Current assets 9,843 9,843 4,869
Total assets 16,929 16,929 10,014
Current Liabilities
Bank loans and overdrafts 859 859 1,077
Trade and other payable 2,787 2,787 1,671
Current income tax liabilities 135 135 253
Total Current Liabilities 3,781 3,781 3,002
Non-Current Liabilities
Long-term credits 44 44 221
Bonds 119 119 933
Promissory note 5 5 5
Deferred tax 758 758 703
Total Non-Current Liabilities 926 926 1,862
Minority interest 164 164 132
Capital and reserves
Share capital 4,121 4,121 3,000
Merger reserve -1,750 -1,866
Additional capital 4,109 6,287 2,020
Accumulated profit and other reserves 3,828 3,400 1,865
Total shareholders' equity 12,058 12,058 5,018
Total liabilities and shareholders' equity 16,929 16,929 10,014
INCOME STATEMENT
£ '000 30/06/2005 30/06/2005 30/06/2004 31/12/2004
Consolidated Combined Combined Combined
__________ __________ __________ __________
Unaudited Unaudited Audited Audited
Sales 15,389 17,309 11,026 27,115
Cost of Sales -12,906 -14,421 -9,319 -22,698
Gross profit 2,483 2,889 1,706 4,418
16.1% 16.7% 15.5% 16.3%
Administrative expenses -780 -850 -354 -1,045
Selling and distribution expenses -597 -706 -415 -1,070
1,106 1,333 937 2,303
Release of "negative goodwill" (Note 2) 2,368
Income from exchange differences 367 105
Other non-operating expenses -65 -79 -72 -233
Profit before interest and taxation 3,776 1,359 865 2,070
24.5% 7.8% 7.8% 7.6%
Interest expense -78 -95 -112 -305
-0.5% -0.6% -1.0% -1.1%
Interest income 41 41 2 -7
Profit before taxation 3,739 1,305 755 1,757
24.3% 7.5% 6.8% 6.5%
Taxation -149 -147 -110 -301
Profit after taxation 3,591 1,158 645 1,456
23.3% 6.7% 5.8% 5.4%
Minority interest -6 -13 -7 -19
Profit attributable to ordinary shareholders 3,585 1,144 638 1,437
22.3% 6.6% 5.8% 5.3%
Earnings per share:
- basic 2.2p 2.8p 2.1p 4.8p
- diluted 2.1p 2.7p 2.1p 4.8p
CASH FLOW STATEMENT
£ '000 1/01/2005 1/01/2005 1/01/2004
to 30/06/05 to 30/06/05 to 31/12/04
Consolidated Combined Combined
__________ __________ __________
Unaudited Unaudited Audited
Cash flows from operating activities
Net profit before taxation 3,739 1,305 1,757
Adjustments for:
Release of negative goodwill -2,368 0 0
Exchange difference -367 -105
Depreciation 260 308 516
Interest expense 78 95 305
Interest income -41 -41 7
1,302 1,562 2,586
"-" Increase in trade and other receivables -1,071 -588 -71
"-" Increase in inventories -1,704 -1,666 -872
"+" Increase in trade and other payables 1,176 868 -349
Cash (used by)/generated from operations -297 177 1,293
Interest paid -78 -95 -305
Interest received 41 41
Income tax paid/(refunded) -159 -179 -67
Net cash (used in)/generated by operating activities -493 -57 922
Cash flows from investing activities
Purchase of property, plant and equipment -2,123 -2,234 -1,566
Purchase of investments 207 0 1
Proceeds from sale of property, plant and equipment 0 0 3
Proceeds from sale of investments 0 0 -7
Loans repaid (issued) -297 -461 -207
Net cash used in investing activities -2,213 -2,696 -1,776
Cash flows from financing activities
Proceeds from issue of bonds and other non current -833 -1,054 912
loans
Proceeds from issue of shares 1,121 1,109 0
Proceeds from issue of additional capital 4,111 4,112 0
Distribution of profit 0 0 0
Net proceeds from issue of promissory notes 0 0 -20
Net proceeds from short term borrowing -307 -321 147
Net cash generated by/(used in) financing activities 4,093 3,846 1,039
Effect of exchange rate changes and restatements on -122 -129 -17
cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents 1,264 965 168
Cash and cash equivalents at the beginning of the 300 132
year 0
Cash and cash equivalents at the end of the year 1,264 1,264 300
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Consolidated)
£ '000 Share Additional Retained Share- Minority Total
capital capital and earnings holders interest equity
revaluation equity
reserve
Balance at 1 January 2005
Issue of shares 4,121 4,398 8,519 144 8,663
Fund-raising expenses -286 -286 -286
Exclusion from Group
Issued on acquisition of
Operating Group
Net profit for the period 3,585 3,585 6 3,591
Exchange differences on -3 243 240 14 254
translation to the
presentation currency
======= ======= ======= ===== ======= =====
Balance at 30 June 2005 4,121 4,109 3,828 12,058 164 12,222
======= ======= ======= ===== ======= =====
NOTES
1. Accounting Policy Statement and Basis of Preparation
The accounting policies used in preparation of the above statements are those
expected to be adopted by the Company in preparing its annual financial results
for the year ended 31 December 2005. The main difference in the basis of
preparation of these results as compared to those produced previously is the
method used to consolidate the results of the Group companies. The Group
prepared its financial statements for the year ended 31 December 2004 using on
the pooling of interests ("merger") method, to reflect the activities of the
whole Operating group for the full year. In practice such method is used to
illustrate the "combined" results of a group of companies operating under common
control and management, but formally not being linked by a common parent
company.
However, since all the companies within the Operating Group became subsidiaries
of Ukrproduct Group Ltd (the Company) on the date of its floatation on AIM, the
Company will use the purchase method to consolidate its financial results
starting from the date of the IPO. Since the Group was formally established on
February 11 2005, the first half consolidated results for 2005 should be
prepared from that day forth, thus resulting in exclusion of trading results for
the period 01.01.05 - 11.02.05. Due to operational and presentational reasons,
the consolidated results have been prepared for the 5 months ended June 30,
2005. However, in order to provide a more accurate and comparable information to
the shareholders, in addition to the consolidated 5 month results, the
management has decided to also prepare the combined accounts for 6 months ended
June 30, 2005, which are comparable to the same period in the previous year.
These combined results are referred to as "combined" results within this interim
financial review.
2. Goodwill
The consolidation of a group of companies using the purchase method gives rise
to goodwill, which is measured as the excess of the consideration paid over the
net fair value of assets acquired by the acquirer ("goodwill"). In the case of
Ukrproduct Group Ltd, such excess was negative, meaning that the Company
purchased the assets of its subsidiaries at a price lower than the net fair
value of those assets, thus giving rise to "negative goodwill". The "negative
goodwill" is a non-recurring item which has been released through the Income
Statement. As can be noticed, the "negative goodwill" number which was treated
as income in the Income Statement (2,368) is different from the number of the "
negative goodwill" as calculated in Note 4 (2,792) for the purposes of the
Balance Sheet. The difference is due to different treatment of the exchange rate
of Ukrainian and British currencies, when calculating the Income Statement and
the Balance Sheet. The Income Statement is calculated using the average exchange
rate for the period, while the Balance Sheet is calculated using the exchange
rate as at the end of the period.
3. Earnings per share
Basic earnings per share have been calculated by dividing the net profit
attributable to ordinary shareholders excluding non-recurring items (release of
"negative goodwill", income from exchange differences and other non-operating
expenses) by the weighted average number of shares in issue during the period.
Consolidated Combined Combined Combined
Five months Six months Six months Twelve
ended 30 ended 30 ended 30 months ended
June 2005 June 2005 June 2004 31 December
2004
Net Profit attributable to ordinary
shareholders, £ 914,656 1,157,638 637,677 1,436,020
Weighted average number of
ordinary shares 41,214,953 41,214,953 30,000,000 30,000,000
Basic earnings per share 2.2p 2.8p 2.1p 4.8p
Number of ordinary shares granted
under warrants and option
agreements 2,214,924 2,214,924 0 0
Fully diluted average number of
ordinary shares 43,429,877 43,429,877 30,000,000 30,000,000
Fully diluted earnings per share 2.1p 2.7p 2.1p 4.8p
4. Acquisition of CJSC Ukrproduct Group, Linkstar Limited and Dairy Trading
Corporation Limited
With effect from 11 February 2005 the Company acquired a Group of Companies
(previously referred to as the Operating Group) with business operations
primarily in Ukraine.
The assets acquired are summarised in the following table:
£' 000
Net assets 5,792
Fair value of assets acquired 5,792
Consideration 3,000
Goodwill 2,792
5. Dividend: On 29 June 2005, the Board recommended the first interim dividend
of 0.36 pence per share to be paid to the shareholders on record as at 23
September 2005. The payment date is 28 October 2005.
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